The Consumer Financial Protection Bureau (CFPB) filed a Consent Order on Tuesday against Lighthouse Title, a title insurer based in Holland, Michigan.  The order was, the Bureau said, sending "a clear and simple message" that it intends to pursue legal action against financial institutions that pay in any manner for referrals.  The administrative proceeding carried a civil money penalty of $200,000.

The Bureau said that Lighthouse Title had violated the Section 8(a) of the Real Estate Settlement Procedures Act, (RESPA) and its implementing regulation, Regulation X.  The relevant section of RESPA states, "No person shall give and no person shall accept any fee, kickback, or thing of value pursuant to any agreement or understanding, oral or otherwise, that business incident to or a part of a real estate settlement service involving a federally related mortgage loan shall be referred to any person."

According to the consent order, since May 2009 Lighthouse had entered into a series of Marketing Services Agreements (MSAs) with various parties such as, for example, real estate agents, for the provision of marketing and advertising services with the understanding that in return, the counterparties to the MSAs would refer closings and title insurance business related to federally related mortgage loans to Lighthouse.  The Bureau further alleges that Lighthouse believed that, absent these MSAs, the counterparties would refer their business to other companies. 

The MSAs were constructed so as to appear as if the payments were made in return for marketing services the companies were supposed to provide to Lighthouse but Lighthouse did not determine the fair market value of the services nor did it monitor the counterparties to see if they provided the services as agreed.  Instead, the Bureau says, it set the fees to be paid pursuant to the MSAs, in part, by considering how many referrals it had received from the counterparties and the revenue generated by those referrals.  In some cases the fees were determined by considering how much Lighthouse's competitors were willing to pay for marketing and advertising services.

CFPB said that the counterparties referred more transactions to Lighthouse when they had MSAs than when they did not.  The difference was statistically significant and the variations could not be explained by seasonal or year-to-year fluctuations.

In addition to the civil money penalty the company is also required to terminate immediately any existing MSAs with companies in a position to refer business to Lighthouse, and is prohibited from entering into new MSAs with any such companies.

"Today's action sends a clear and simple message, that quid pro quo agreements for real estate referrals are illegal," said CFPB Director Richard Cordray. "The Consumer Bureau will continue to take action to ensure that the mortgage market is a level playing field where everyone plays by the rules."